Financial planners say they continue to have reservations about the proposed Compensation Scheme of Last Resort (CSLR) and the Financial Accountability Regime (FAR) after legislation for the two Hayne royal commission-backed measures was introduced in the House of Representatives last week.
Financial Services Minister Stephen Jones presented the bills last week, which represent the last tranche of remaining reforms recommended by the Hayne royal commission in its final report in 2019.
Mr Jones says the Commonwealth will fund the establishment of the compensation scheme, which is intended to be operational from December this year if the bill is passed through both houses of parliament by March. The Commonwealth will also fund the scheme's initial operation until 30 June 2024.
He said a backlog of complaints that have been lodged with the Australian Financial Complaints Authority (AFCA) and that are expected to be eligible to claim will be funded through a one-off levy on Australia's 10 largest banking and insurance groups.
From 1 July 2024, the costs of the compensation scheme are to be funded fully through industry funded levies. There will be a levy framework that provides for an ongoing annual levy on entities that fall within a subsector within the scope of the scheme.
“The CSLR is designed to be financially sustainable and provide assurance to relevant financial market subsectors about the maximum amount expected to be levied,” Mr Jones said in Parliament last week.
The Financial Planning Association (FPA) said an effective CSLR will promote trust in financial advice among consumers by ensuring that if retail consumers have lost money due to poor advice, there is a compensation mechanism available.
“However, the legislation has not changed substantially from previous drafts, and many of the concerns we expressed previously remain,” FPA CEO Sarah Abood said.
She said the CSLR scope needs to be broader to ensure that consumers are covered for the full range of matters considered by AFCA, including managed investment schemes (MIS).
“We acknowledge that a review into the regulatory structure of MISs has been announced, and this is a positive step,” Ms Abood said.
FPA is also concerned about the cost of the CSLR and what it means for FPA members.
“We’re very pleased to see that advisers will not be asked to fund compensation for past misdeeds at the outset,” Ms Abood said.
“However, the proposed sector cap of $20 million could see levies in the future of over $1,250 per adviser at our current numbers.”
“This is a significant impost on advisers who already face increased costs from the unfrozen ASIC levy, professional indemnity premiums and the general increased costs all businesses are facing in the current high inflation environment,” she said, reported Insurance News.